Table of contents
The government has released the amended draft Div 296 legislation late in December 2025 to be law from 1st July 2026.
Total Super Balance (TSB) of all members will be considered at any time that is after the start of the year to before the end of the financial year, and if either is over the $3 million or $10 million threshold, then the new Div 296 Tax will apply to that member. However, in earlier Version, TSB at the end of the year was used to judge if Div 296 Tax applied or not.
Generally, what was announced in the draft legislation is consistent with what the Treasurer announced in October 2025 and has significantly reversed the severity of the tax as in Version 1, particularly for the SMSF sector.
Some of the highlights are:
- removal of the tax on unrealised gains;
- allocation of earnings, among members in an SMSF will now have to be verified by an actuary;
- treatment of capital gains accrued prior to 1 July 2026;
- removes the need to tax unrealised capital gains;
- SMSFs will have to make an irrevocable election (by due date of the funds 2026 / 7 income tax return) to apply a cost-base adjustment for all CGT assets held by the fund as at 30 June 2026.
The new draft has created a lot of complexity for large public offer super funds as it is not possible to calculate realised gains specific to individual members in public offer funds.
The proportionate rule will attribute earnings broadly based on the proportions of member balances over total fund assets.
Financial year 2026/7 income being the first year means that super members will have up to 30 June 2027 to decide whether they need to withdraw any super benefits to fall below the relevant $3 million or $10 million cap.
With the legislation unlikely to become law before the end of June 2026, members and their advisers will have very less time to fully understand how Division 296 will operate and to put appropriate measures in place.
Underpaying a Pension
A superannuation income stream ceases for income tax purposes if:
- Pension capital is exhausted,
- transferring the pension to another fund without the member’s consent.
- death of a member (unless there is a reversionary pension in place).
- failure to satisfy the minimum annual pension payment.
When these requirements are not met, the pension is deemed to have stopped from the beginning of the income year for income tax purposes.
As a result, any payments made to the member throughout that income year, or in subsequent years, will be classified as lump sum payments. This means that the fund is not entitled to claim exempt current pension income (ECPI) in relation to those payments.
Previously, when the minimum pension was not paid in any year, the pension continued in the following year. This is no longer the case.
From 1 July 2024, when the pension ceases it cannot be reinstated or continued. That pension must cease and a new income stream must commence. This means the original pension must be closed (commuted).
A commutation generally happens when there is an agreement between the member and the trustee of the fund and a set procedure as outlined in the trust deed is followed.
If the member wants a new pension to be commenced in the following year, then the member must apply to the trustee as follow the trust deed of the fund. Most trust deeds recommend a “pension agreement” between the member and the trustee of the fund.
Administrator of the fund must also report the commutation of pension and commencement of a new pension to the ATO by reporting changes to the transfer balance account of the member.
Payday Superannuation
The Government has announced changes to the Superannuation Guarantee (SG) payment timing, known as Payday Superannuation, which is scheduled to commence from 1 July 2026.
Under the new rules, employers will be required to pay SG contributions at the same time as employees’ salary and wages, rather than quarterly. This means super contributions will be paid with each pay cycle.
Currently, employers can wait until the end of each quarter to pay SG contributions.
Payday Super will remove this delay, ensuring employees receive their superannuation as they earn it.
This change will improve compounding outcomes over time due to earlier investment of contributions. These changes relate to payment timing only. The SG rate itself is not affected by Payday Super.
Superannuation on Paid Parental Leave
The Government-funded Paid Parental Leave (PPL) has begun from 1 July 2025 and from 1st July 2026, payments of super on these payments will be made directly to individuals' superannuation fund.
This policy is designed to reduce the impact of career breaks taken to care for young children on superannuation balances.
Downsizer Contributions – No Maximum Age Limit
Downsizer contributions are not subject to the same age restrictions that apply to other types of superannuation contributions.
While non-concessional contributions are generally limited to individuals under age 75, downsizer contributions do not have a maximum age limit. This means an individual aged 75 or older can also make downsizer contributions, provided all the other eligibility conditions are satisfied.
Reminder that eligible individuals may contribute up to $300,000 per person from the proceeds of selling their principal residence. The contribution must generally be made within 90 days of settlement.
Downsizer contributions are subject to a separate set of eligibility rules and are not restricted by the usual work test or age-based contribution limits. They are available once an individual is 55 years or older.
Transfer Balance Cap (TBC) increases to $2.1M from 1st July 2026
After release of December 2025 Consumer Price Index the transfer balance cap (TBC) will increase from $2 million to $2.1 million on 1st July 2026.
TBC is the maximum amount of retirement savings that can be in tax – free pension phase. Those who have not commenced a pension yet, can commence a pension with $2.1 million transfer balance cap.
Those who have already maximised their cap amount (e.g. commenced a pension with $2 Million) will not be able to add more to the pension account. Proportionate increase is possible for those who have a gap in their TBC. E.G. those who commenced a pension with $1 Million have 50% gap as the maximum TBC was $2 Million and hence will be able to move another $1,050,000 to pension phase and that means 50% of the increase of $100,000 (from $2.0 million to $2.1 million) will be available to them.
Concessional and Non-Concessional Contributions limits likely to increase
Average Weekly Ordinary Time Earnings (AWOTE) of November (middle month of the quarter) of the previous year decide if contribution limits will be indexed for the following financial year.
It is very likely that concessional contribution will increase from $30,000 to $32,500 and non-concessional contributions will increase from $120,000 to $130,000. AWOTE figures will be released in mid to end Feb 2026.
ASIC Auditing the SMSF Auditors
ASIC registers qualified people to become SMSF Auditors and monitors their skills by checking the SMSF’s which they have audited.
In the first half of the year, they disqualified 4 auditors and imposed additional conditions on 2 and cancelled registration of 22 SMSF Auditors. ASIC took this action because auditors were breaching their professional obligations and standards.
Transfer Balance Account Report (TBAR)
If your SMSF had a Transfer balance account (TBA) event it must be reported to ATO on quarterly basis. Events you need to report include:
- starting a retirement phase income stream
- starting a death benefit income stream, including those paid to a reversionary beneficiary
- full or partial commutations of retirement phase income streams
- any time a member's super income stream stops being in retirement phase, for example when the super income stream fails to comply with the pension rules or standards
- limited recourse borrowing arrangement (LRBA) payments if:
- the LRBA was entered into or refinanced from 1 July 2017, and
- the payment increases the value of the member's interest that supports their retirement phase income stream
These events result in a credit or debit in the member's transfer balance account. We use this information to administer the member’s transfer balance cap.
If you need help with any of the above issues, please contact our office.
